Guide: Understanding The Types Of Cryptocurrency Tokens

Crypto tokens serve very different functions depending on their native ecosystem or purpose of the organisation issuing them. Knowing what sort of token you’re dealing with and it’s architecture will help you determine it’s possible future value and possibly see better returns from any ICO investment you might make in future.

Crypto tokens tend to function in the following ways, though sometimes there may be functional overlap:

Currency

Many of the first generation tokens like Bitcoin, Litecoin & Monero function as a means for the transfer and storage of value. Like money, their price is determined by supply and demand. A cryptocurrency’s value usually take a while to mature as their value depends on high liquidity stemming from a large user base. Cryptocurrencies, unlike traditional fiat currency, aren’t centrally issued or controlled and were the first use for blockchain based tokens.

Utility

Utility tokens, like Ripple (XRP), Ethereum (ETH) and more recently Neblio (NEBL) are used to power processes like smart contract execution within their respective blockchain ecosystems. Utility tokens typically aren’t purposed to be traded for goods or services outside of their ecosystem. Value will generally be determined by users’ demand for the token in order to power whatever decentralised application (DApp) they are developing. Blockchain platforms that use common coding languages will probably attract more development in future.

Asset

Asset tokens usually function as a title deed. Representing ownership of an actual physical item, as is the case with the Ethereum Link tokens, which represent the ownership of actual, factual, real deal .99 grade silver. The only drawback with asset type tokens is that their value is determined by the value of the team they represent and are in that way fixed or may depreciate in the case of a commodity. This, in contrast, makes for a more stable asset class

Equity

An equity token denotes a stake in a particular organisation, meaning your own money from how the company you run, and the percentage you own is linked to how many tokens. Property projects like Atlant and Prosperiprop have released equity tokens. We may have companies leverage smart contract technology to issue stock- like tokens in future.

Asset tokens might also become the most regulated token type. We’ve already seen Securities & Exchange Commision in the US put stricter rules down for tokens that possess any security-like properties.

Reward

Unlike currency type tokens, reward tokens don’t necessarily require high liquidity, making them a little more difficult to assign a value to. Reward tokens can be issued as traditional incentive programs like eBucks or airline miles